Burned down house, bank got paid by the insurnance, still seeking the balance. Short Sale?

[Eve W.]

I am trying to put a house under contract.

The house was burned down last Oct. It needs complete demolition and rebuild. After insurance paid the bank, the balance is like $40K. The land doesn't worth that much, $17K in appraisal.

Would this be a short sale? Do I need to help the seller to submit a financial difficulty letter? The seller actually is not in a stressed financial situation, just doesn't make sense to continue to make the payment while the house doesn't worth anything.

Any feedbacks are very appreciated.